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The hand giveth, the hand taketh away

China only has about 30 percent of the world's rare earth metal deposits, but thanks to clever planning it today controls 97 percent of the world's production of these scarce resources.  Deposits of this family of 17 elements -- vital to power electronics found in televisions, smart phones, electric vehicles, and a variety of other devices -- are found in California, Canada, Australia, and Russia, but it will take years to bring them online.

In short the world is at China's mercy for now when it comes to rare earth supply.  And China's biggest rare earth metal producer -- the Inner Mongolia Baotou Steel Rare-Earth (Group) has announced that it is severing shipments to the U.S., Japan, and Europe for one month in an attempt to artificially inflate prices.

Inner Mongolia Baotou Steel Rare-Earth also plans to buy rare earth metals in an attempt to further move prices upward.  The company already controls 60 percent of China's rare earth production, thanks to the Chinese government's decision to merge 35 other local companies into the Inner Mongolia business, or fade them out.

Rare earth metals
China controls 97 percent of the world's rare earth metal production.
[Source: Wikimedia Commons]

While the Sichuan province in the southwest and Shandong in the east produce significant amounts of rare earth as well, the Inner Mongolia Baotou Steel Rare-Earth Group's decision should be enough to move prices significantly.

Doing so will benefit China in a couple ways.  First, prices will almost certainly go up, reverse a downward slide.  Lynas Corp., an Australian rare earth producer reveals that since June the price of neodymium oxide has declined 34 percent to $157 per kilogram, while europium oxide is down 35 percent at $2,904 per kilogram.

Sun Fan, a rare earth analyst for Goldstate Securities in the southern city of Shenzhen comments in a Associated Press interview, "The impact on the market supply will be substantial.  The dual measures of suspension and purchase will offer support for the rare earth prices and make the prices gradually pick up in the future."

Aside from raising prices higher, the pause in production will allow China to try to kick start its efforts to produce locally produce magnets.  When it comes to the production of the magnets used in the electric motors of hybrid and electric vehicles, typically the biggest profit is not realized at a commodity level, but at a magnet producer level.  Thus in the past foreign nations like the U.S. and Japan have pocketed the biggest profits.  China hopes to change that.

China hopes to supplant its U.S. and Asian rivals as the main producer of electric motor magnets, by choking resource supply to its foreign competitors. [Source: ThinkGeek]

China's Ministry of Land and Resources in September bragged that rare earth metals were the nation's "21st century treasure trove of new materials."  It argued that exports should be tightened, choking foreign supply and favoring Chinese manufacturers.

Source: AP

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RE: I'm sorry I forgot....
By cruisin3style on 10/21/2011 3:53:31 PM , Rating: 5
You have confused your info

The 70% of the US economy is consumption, but the US does not do 70% of the world's consumption...i found info that says the US and western Europe combined consume 60%

and it's also probably important to note that China's currency is kept artificially low compared to the dollar so if the official exchange rate converts to $10,000 the actual value of their wages might be in the $12k to $15k range (i'm not going to do the math but i've heard it is kept 20% to 40% below actual worth)

RE: I'm sorry I forgot....
By lyeoh on 10/23/2011 3:13:02 PM , Rating: 1
It's also important to note that:
1) The US pays China mostly in US dollars.
2) The US even borrows from China in US dollars ( the last I checked about 2 trillion?)
3) The US can create US dollars on demand as long as oil, wheat, CPUs are all traded in US dollars. In short the rest of the world lives in USA's "US Dollar Zimbabwe".
4) The Federal Reserve has in fact created more than 9 trillion US dollars since 2008 (think about what this means to those who have lent out trillions of US dollars, and/or have large amounts of US dollars).

So when the US grumbles about China's currency manipulation, trade "imbalance", I go: "What the fuck are you bunch grumbling about?".

The USA now looks like a fat slob who buys cheap goods and services from the poor hardworking guy next door using "Fat Slob Bonds" and "Fat Slob Dollars", and then complains about the guy (taking away your jobs, manipulating currency) while stuffing face, watching TV, and then sending toxic garbage to the neighbour for recycling. Who put a gun to your head and forced you to do that?

FWIW, Toyota manages to build cars in the USA that are mostly made in the USA (more US content even than cars from some "USA" car makers). So the US can build some stuff at competitive prices.

You guys can do better than this. What happened to the Land of the Free and the Home of the Brave?

Rate me down if you want, but it's all the truth- go google if you don't believe me.

RE: I'm sorry I forgot....
By ianweck on 10/25/2011 8:15:00 AM , Rating: 1
You're kind of a dick, aren't you?

RE: I'm sorry I forgot....
By aguilpa1 on 10/25/2011 2:50:27 PM , Rating: 2
While I tend to agree that most of his facts sound like crap, he has a point. There are far to many lazy Americans. I'm one of them but at least I'm skilled and educated and my career contributes to the technical infrastructure to where I can earn a decent wage.

However, I see hundred if not thousands of "Americans" waiting at the food stamp and unemployment line who look like they have never missed a meal in their life, driving nicer cars than me waiting for that government hand out off my tax dollar. Those same people that complain about people taking their jobs away but if they were offered a job picking crops from a field or washing dishes would rather stay at home. The illegal aliens don't mind doing those jobs but we would rather kick them out because they are to successful at it.

RE: I'm sorry I forgot....
By lyeoh on 10/25/2011 6:22:36 PM , Rating: 2
While I tend to agree that most of his facts sound like crap

And which of them are wrong?

The original post I was replying to was talking about China's currency manipulation. I was pointing out why that should not be a big deal from the US perspective.

As for the "fat slob" remark, I was mainly referring to the country, that's why I said "The USA now looks like a fat slob...".

Regarding your tax dollars, if the US Gov had passed some of the trillions of dollars created by the Federal Reserve to the US people, the cost of the "hand out" would be spread across you, China, and the rest of the world who hold US dollars. Creating US Dollars is just another way of "taxing" EVERYONE who holds or is owed net positive amounts of it. It makes what they have worth less. But who did they give the trillions to instead?

See the deal should be:
The world = Zimbabwe.
The US Gov = Robert Mugabe.
The US People = Mugabe's Friends
And whenever the US Gov creates money, the US People should get a cut, so the US Gov gets richer, the US people get a bit richer and the rest of the world gets poorer.

But recently that didn't happen right? Seems the US Gov is no longer a friend of the US People, and sharing the $$$ with them. So what should the US people do?

If the truth sounds like crap, sometimes that's because the situation really is crap.

"My sex life is pretty good" -- Steve Jobs' random musings during the 2010 D8 conference

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